Wednesday, August 15, 2012

After going a full year without an entry, I think it's time to officially close the book on this blog.

Before I sign off, here are a few final comments, in no particular order.

First, not having a monthly house payment is a great thing. I highly recommend it. After paying rent for seven or eight years and then making mortgage payments for almost a decade, I can say without hesitation that I would much rather live with no rent and no mortgage than under any other scenario. Our largest monthly expense now is Savings, followed by Food.

I don't regret for a second that we chose to pay off the mortgage instead of funneling our extra "mortgage-killing" cash into investments. We spent just over three years aggressively paying down our mortgage. Now that it's gone, we have a lot of extra cash in the monthly budget to use for saving and investing. And that's what we are currently doing. I can live with the hypothetical "lost opportunity" of not being invested in stocks (or bonds or whatever) during those 40 months. It's much better to see that our long-term liabilities are $0.

Since April 2011, we've grown our savings by more than $60,000. We also fully funded our IRAs using another $10,000 ($5,000 each) and bought a new (used) car -- paid with cash. This is evidence of the increased cash flow that comes from two full-time incomes and no mortgage payment.

We've mostly retained our more-frugal habits that we picked up when we began the mortgage-killing project. On the occasions that we do splurge, we don't feel like we're destroying the monthly budget because we're currently saving more than 50% of our take-home pay.

We are truly homeowners. We are not home-borrowers. We are Home Owners. And we earned that title.

So what's next? I admit, it was tough to get a new focus once the debt was paid. We began dumping money into savings without any clear plan of attack. It took about a year of living in the new mode before we started seriously discussing our next move. But I'm not going to go into detail here. I'll be continuing the journey on a new blog. Perhaps you will join me there.

Monday, August 15, 2011

Today, almost four months after we sent our final payment to our lender, we received a Release of Mortgage in the mail. It includes a cover letter from the lender, along with a very official-looking Release document, with a notary stamp and a sticker from the county Register of Deeds.

I'm glad to have it. I was just wondering this weekend when/if we'd ever receive anything more than an initial form letter from our lender stating that our loan had been paid in full.

The cover letter that accompanied the Release document includes a statement from the lender, encouraging us to "consider [them] for future mortgage needs."

Friday, July 1, 2011

(Or should this entry's title be more correctly phrased as "For whom I'm working"?)

I became a first-time homeowner (aka mortgage holder) almost ten years ago. From that time until May 2011, not a month passed when I was not obligated to send a mortgage payment to a lender. Although the monthly amounts were never financially crippling, they were also never trivial. Therefore, it was crucial that I maintained a steady income to support my housing.

Over the past decade, there have been several cycles in the economy and job market during which the prospect of maintaining steady employment seemed pretty bleak. When rumors of layoffs would circulate through the office, the collective level of fear would rise among the employees. When jobs were eventually cut, and colleagues let go, I remember feeling a mixed set of emotions: relief that my job remained, concern for friends and co-workers who had been terminated, disdain for the extra work that the remaining employees would have to pick up, and an uneasy feeling that another round of cuts would follow in the not-too-distant future.

Now that the mortgage is dead, work has become less emotional. Although my wife and I still have financial obligations to meet (including taxes, insurance, and consumption spending), none of these is as regular nor as substantial as the monthly mortgage payment used to be. Therefore, I have the feeling now that I am working more because I choose to do so (in order to improve my own financial situation), instead of working because the mortgage lender compels me to do so.

This doesn't mean I've suddenly started slacking off at work, acting like the protagonist of Office Space after his epiphany. However, mentally I feel more like work is something I choose to do -- because it matches my future goals -- instead of a task that has been chosen for me. So, to follow up with the title of this entry, I'm not working for the mortgage company. I'm working for me.

Webster defines "Freedom" as "the absence of necessity, coercion, or constraint in choice or action". By paying off the mortgage I have given myself some additional freedom: to work, or not work, or work less or more. My wife benefits from this as well. It's a great reward for the completion of the project!

Sunday, June 19, 2011

We had a good system in place. We spent time up front to create a plan to kill our mortgage. After a few months, it started running on autopilot. We didn't have to give it much additional thought. And ultimately the debt withered and died. Our mortgage-killing plan can be stated in its most basic form thusly:

Now that we've paid off our mortgage, there's a gap in the plan where step 2 used to be. What do we do with our extra cash flow each month?

I have to admit, after we saw the words "PAID IN FULL" appear on our online mortgage account, my wife and I slacked on step 1 during the month of May. I think we both needed a month to celebrate our accomplishment and not think too much about spending. But now that we're into our second month of mortgage-free living, I fear we will lose our commitment to minimizing our unnecessary spending if we don't refocus our efforts on new priorities.

Something else must fill the void left behind by debt reduction.

We need a new plan. But it won't just happen on its own. We have to make a conscious decision how to allocate our money going forward.

Here are a few of the things we'd like to do with our future "non-mortgage" payments:

Save and invest for current income (pre-retirement)This is a long-term goal. I envision this as a debt-reduction snowball, only in reverse. An investment snowball? I am thinking of the classic personal finance book Your Money or Your Life when I ponder this goal. This will have to wait until we replenish our short-term "emergency" savings. I'm feeling the same impatience toward this saving/investing goal as I was toward the mortgage elimination goal. I have to remind myself that this goal is a marathon, not a sprint.

Make some improvements to our homeNow that we own 100% of our house, wouldn't it be nice to start to tackle some of the projects we deferred while we were paying off the mortgage debt? Potential projects on our list range from smaller cosmetic enhancements (paint and baseboards) to more elaborate undertakings like refinishing the basement or remodeling a bathroom.

Be more generous (gift-giving and charitable donations)We cut back on charitable donations while we were paying down our debt. We'd like to get back into a habit of giving. And although we were not stingy with gift-giving during the project, we would now like to take advantage of our improved financial situation to give nicer gifts when appropriate.

Allow for more discretionary spending ("wants")This category is a potential budget-killer. There are whole host of items and experiences that we're tempted to purchase now that our debt is gone. The key here is moderation: spreading these expenses out over time, and deciding which purchases will give us the most enjoyment/satisfaction/utility.

We can't accomplish all of the above at once. So far, we've been saving some of our extra cash, although we did give some gifts to our parents this spring, and the discretionary spending has been higher than usual. We need to sit down and create a budget (with actual dollar amounts or percentages) so we can keep track of these competing goals. I'm confident with a little work, we will put ourselves in a position to reap the rewards of our efforts in the future.

Monday, May 23, 2011

This is the time of the month (the beginning of the 4th week) by which I've always made the mortgage payment in the past. Only May 2011 is different. There's an empty spot in the checking account ledger where a big withdrawal used to hang out.

(Warning: this entry may read as if I'm bragging...but I'm really just feeling the satisfaction of our new financial situation. Finally reaping the benefits of our hard work, perhaps.)

We're actually feeling a double benefit from having the mortgage paid off. Not only are we avoiding the "mandatory" monthly payment -- we're also avoiding the extra principal payment which we had become accustomed to saving during the DTM project. The extra principal amount varied, but looking back at our payments, we averaged over $2,800 in extra payments each month (excluding the large payoff amount at the end of the project).

What this means is that the extra cash in our new monthly budget is somewhere north of $4,000.

Our savings could definitely use some replenishment. We drained a large portion during the final two months of the project to deliver the final two death blows to the mortgage debt. But using the very rough $4,000 figure above, we could have our savings account balance back above the pre-payoff balance by the end of this calendar year.

But why stop there? Why not take advantage of our learned frugality and continue to benefit our overall financial situation? At the start of the project, I said that one of the things I wanted us to gain from a mortgage-free lifestyle was increased freedom from obligations, so that we could live on a single salary (or two part-time salaries) if we so choose. So starting next month, we are living on one salary. No, neither of us is going to quit (or change) jobs, but we will be directing 100% of the post-tax portion of one of our salaries into our savings. Since we both make a similar take-home pay, it doesn't really matter which of our salaries covers expenses and which goes into savings -- it's a communal pot of money anyway. It will be automatic. We won't even think about spending what we don't have in our checking account.

With this plan in place, we'll have the "emergency fund" portion of our savings fully restored by the end of the summer. After that, we can start making decisions about what to do with the surplus. I'd love to start doing some more dedicated investing for our future -- allowing our assets to start contributing to our income, resulting in our money working for us.

In addition to saving and investing, there are some other things that we gave up at the end of 2007 which we will likely start to re-integrate into our planned spending. I'll elaborate on those in a future entry.

Saturday, April 30, 2011

This may be a bit anticlimactic considering my previous entry, but for completeness I'll summarize our April mortgage activity using the format I've become accustomed to for more than three years now.

Our April mortgage payment was the 26th of 120 scheduled payments on our ten-year loan. It was the 40th payment since we began our DTM project at the start of 2008. And it was also the last mortgage payment we'll ever make on this house, as the loan is now paid in full.

We began the month with an outstanding balance of $19,107.10. After careful consideration, we decided to transfer enough money from our savings to pay off the remaining balance. Because we paid off the balance before the last day of April, the interest was charged at a daily rate (24 days). Along with the remaining balance, we paid our lender $58.91 interest and a $17 recording fee. Our bank charged us a $25 wire fee for the privilege of sending certified funds to the lender. So the total cost of dealing the mortgage its fatal blow in April was $19,208.01.

Until now I've been listing the amount of interest we save each month by comparing our actual interest payment to the amount of interest we would have owed the lender if we hadn't made prior payments to principal. I call this the "realized" amount of interest. Since the loan is gone, we not only realized the interest savings for the month of April, but also for all future months until the loan would have been paid on the standard amortization schedule (March 2019). Because we would have owed the lender $37,133.57 of interest over the full life of the ten-year mortgage, and because we only paid the lender $9,735.76, we have now realized $27,397.81 in interest savings on the ten-year loan by killing it this month. (This doesn't include interest savings from our original 15-year mortgage which we refinanced in early 2009 -- by including that amount, the total is $28,435.55).

If we had never made any extra payments on our ten-year loan, the remaining balance at the end of April would have been over $121,461.

We reached our original five-year goal last month. We reached our revised four-year goal this month. From start to finish, it took us three years and four months (40 months total) to pay off the mortgage once we made up our minds to do it as quickly as we could manage.

Strangely enough, our achievement doesn't yet seem real. I think it will take at least another month (when we start seeing more unallocated cash in our budget) before we start reaping the benefits, both financially and psychologically.

Although the mortgage is finally dead, I plan to keep this blog up and running for a while. I would like to reflect a bit on our experience over the past few years, and describe our new mortgage-free (and 100% debt-free) existence. At some point in the not-too-distant future I will probably decide that I've had my final word, and can close the book on this project. But then, of course, a new project will begin.

I'd like to dedicate this month's entry to my loving wife, who provided us the courage to set bold goals, the tenacity to help keep ourselves on target, and the hard work (and paychecks) to back it all up. Congrats, girl! You deserve it.

Tuesday, April 26, 2011

About Me

My wife and I paid off our mortgage in April 2011, three years and four months after we set this goal for ourselves. We are now working to save (and grow) an income-producing portfolio. We hope to replace our full-time employment with income from investments within the next decade.